Managing Television Advertising Production Costs

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    27-Sep-2015

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CHAPTER 1PROBLEM FORMULATION

TITLE OF THE STUDY:A Study On Managing Television Advertising Production Costs In Full Service Ad Agencies.BACKGROUND OF THE STUDY:Full service advertising agencies create advertising campaigns and place advertising messages in media. Over the past three decades, the advertising and marketing services sector has undergone a number of significant changes. On the supply side, advertising agencies have both unbundled and extended the mix of services they offer. Departing from the longstanding industry practice of full-service providers, agencies gradually became more willing to provide clients with a limited range of services so that it now is commonplace for an advertiser to employ one agency for creative services and another for media services.STATEMENT OF THE PROBLEM:There is a drastic increase in the cost of production of advertisement ad films which has caused huge financial headaches for both production houses and clients. This rise is attributed to many factors including high rent of cine units, camera equipment, light arrangements and artists. There is no point of differentiation between ad films and movies even though the purposes of both are not the same.RELEVANCE OF THE STUDY:Advertising is multidimensional. It can be viewed as a form of communication, as a component of an economic system, and as a means of financing the mass media. Different kinds of businesses use advertising to motivate different kinds of markets toward different kinds of responses. The advertisements we see and hear are end products of a series of investigations, strategic plans, tactical decisions, and executions that all together comprise the total advertising process.Information technology is playing more and more important role and offers the possibility of a computer-mediated environment, which can change the traditional one-to-many communications model of advertising. With the improving browsing speed, Internet is now becoming another possible source of video advertising.

OPPORTUNITIES FOR MANAGING TELEVISION COSTSThere are a number of proven strategies for managing television production costs more effectively including: PRODUCTION UNCOUPLING: Some or all of the production process from the agencies and managing the suppliers directly. PRODUCTION COST ASSESSMENT: Of some or all of the stages of the production process by either an external or internal production resources. PRODUCTION COST MANAGEMENT: with an external or internal production resource managing every step of the production process to ensure the maximum cost efficiency. PRODUCTION PRICING MATRIX: sets an agreed price for production services and works well for routine production functions such as adaptions of existing work, dubs and the like.1. PRODUCTION UNCOUPLINGAdvertisers with significant spending power can realise the economies of scale by uncoupling the production process from the agency and/or Film Company and dealing direct with a smaller number of suppliers.The uncoupling process can typically be for:Production HousePost Production / Visual EffectsCastingThe ideal areas for uncoupling are those where the largest investment currently occurs.The direct engagement of suppliers eliminates all commissions, mark ups and rebates, which go directly to the advertiser.Consolidations of services with a smaller number of suppliers also provides economies.This strategy is appropriate:1) When there is significant production investment.2) When there is a smaller number of agencies.3) When the production requirements are reasonably consistent in type and volume.Risks / success factorsThe agencies need to be engaged in the process as it can directly impact their creative options.The advertiser needs to be able to manage the additional suppliers who will bill directly.Assessment of risk / rewardTimeline for implementation: 12 16 weeks.Degree of Difficulty / Complexity: 4/5Savings: 20% - 30% of the cost of the spending being uncoupled, but requires a significant spend level to justify undertaking the process.

2. PRODUCTION COST ASSESSMENTThe advertiser either recruits or outsources a number of production consultants (depending on the volume of productions) to provide expert assessments of the cost and cost implications at each stage of production.Production consultants are typically involved in:Briefing / Budget settingConcept review to assess affordabilityQuote / Estimate EvaluationProduction reconciliation

The production cost consultant provides industry expertise to set and manage expectations against budget. They are able to negotiate with all suppliers to ensure the maximum savings are achieved.It is appropriate:1) When there is significant production investment.2) When there is a diverse number of agencies.3) When the production requirements vary greatly.Risks / success factorsInvolving the consultant at the quote stage is often too late as cost commitments are often undertaken or agreed prior to this.Marketing needs to have trust in the consultant to act on their behalf and achieve the required outcome.Assessment of risk / rewardTimeline for implementation: 4 6 weeks.Degree of Difficulty / Complexity: 1/5Savings: 5% - 10% of total production cost depending on the level of commitment from marketing.3. PRODUCTION COST MANAGEMENTThe advertiser either recruits or outsources a number of production managers (depending on the volume of productions) to manage the production on behalf of the client at every stage of production.Production managers are typically involved in every stage including:Briefing / Budget settingConcept review to assess affordabilityQuote / Estimate EvaluationShoot and Post productionProduction reconciliationThe film company producer looks after the financial interests of the film company. The agency producer looks after the financial interests of the agency. Here the advertiser has a producer too.When is it appropriate?When there is a large volume of diverse, complex or high cost productions.When there is a diverse number of agencies and suppliers required.Risks / success factorsSome see the provision of an advertiser production manager as duplication of services and responsibilities and this can lead to disputes.The production manager can develop their own preferred suppliers and exert undue influence on the outcomes.Assessment of risk / rewardTimeline for implementation: 4 6 weeks.Degree of Difficulty / Complexity: 3/5Saving: 15% - 20% of the production budget depending on the mix/type of productions.4. PRODUCTION PRICING MATRIXMultinational or global marketers who have central origination often have a high volume of adaptations across multiple markets.These adaptations and other routine production services can be priced in a pricing matrix to fix the cost of this work.This includes production processes such as:Super and voice over changesSimple product or packaging changesRe-edits from exiting footageSimple desktop shoots or post retouchingBy assessing and categorising these production requirements you can negotiate and fix the price for the service based on volume and eliminate cost creep.When is it appropriate?When there is a large volume of standard or routine production requirements that can be categorized.Risks / success factorsThe volume of the requirements needs to be accurately estimated to negotiate the best price up front.The categorisation of the project types is important to ensure there is no dispute or creep in production cost.Assessment of risk / rewardTimeline for implementation: 6 8 weeks.Degree of Difficulty / Complexity: 2/5Savings: Initial saving on the current cost of the services provided.

PRODUCTION SUMMARYTelevision production is a complex and technical process, with many cost variables.There are a number of opportunities to manage this process to deliver greater cost efficiencies.These approaches fall into two main types:Cost management cost consultants and production managers.Supplier management uncoupling and pricing.The best approach depends on:The level of investment.The mix and type of productions.The range of suppliers currently used.The consistency and stability of the requirement.The choice of outsourcing these capabilities or recruiting these into the organization depends on the volume of productions and level of investment